Red Flags That Can Trigger a Tax Audit for Private Business
Regardless much income your business produces there are several common ways of getting on the ATO radar and triggering an audit. Often a simple GST audit escalates to a larger review to include income tax and other issues. Taking steps to manage the risk ensures that your business does not come under scrutiny and suffer the impact of an audit.
Report All Your Income
The ATO undertakes processes and procedures to statistically analyse and compare the financial performance of a business against others in the same industry. Benchmarking is used by the ATO to identify businesses that are underreporting income. Penalties of up to 90% can be applied to any shortfall amounts identified in an audit. This can be financially crippling for most businesses.
There are systems in place that automatically data match within and between various government departments. Inconsistencies between a business’ income tax return and business activity statement is likely to trigger an ATO review or audit. Similarly, a variance between the total employee superannuation payments claimed as a deduction and the actual amount paid to a superfund is like to lead to an ATO review, and escalate to the issuing of super guarantee charges and director penalty notices.
Maintain a Good Compliance History
It is important for business owners to understand and address all tax compliance obligations by the due date. This includes both lodgement of the various tax returns and payment of any tax liabilities. Consistent failure to lodge or pay on time is likely to cause the ATO to investigate, or, issue default assessments. A good compliance history also improves the chances of remission of interest and penalties in the event that an audit is triggered and a tax liability eventuates.
Many of the issues raised can be effectively managed with a proactive tax risk management process.
If you have any concerns about your business’ exposure to an audit, require advice on implementing a risk management strategy or need assistance during an audit, please contact our team of tax solicitors at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.